Humana announced Tuesday that it was terminating its merger agreement with its health-insurance counterpart Aetna after a federal judge blocked the deal.

Humana is entitled to a breakup fee of $US1 billion, or $US630 million excluding taxes, according to the original agreement.

Both companies would have combined to form the second-largest health insurer in the US. However, the deal faced strong judicial scrutiny on grounds that it would reduce competition in their industry and make insurance more expensive.

In January, a federal judge blocked the deal on antitrust grounds, arguing that the new company would increase the already rising costs of healthcare coverage for consumers.

Rival companies Anthem and Cigna are still working to close a $US54 billion deal.